Passage

Magnus and Queen Carlsen, Norway residents, are reviewing their financial plan. The Carlsens, both 50 years old, have twins one daughter one son, 18 years old. With their combined after-tax salaries totaling $100,000 a year, they can meet their living expenses and save $20,000 after taxes annually currently. They expect little change in either their incomes or expenses on an inflation-adjusted basis other than the addition of their daughters college expenses. Their long-term financial goal is to provide for themselves and for their kids education plus buying a summer house in California shores. The Carlsens both wish to retire in 10 years. Their daughter Tan Z. Carlsen, a talented musician, is now entering an exclusive four-year college program. This program requires a $50,000 contribution, payable now, to the colleges endowment fund. Thereafter, her tuition and living expenses, to be paid entirely by the Carlsens, are estimated at $40,000 annually. She will fund herself after graduation. The son Fabiano C. Carslen has basic programming skills and will work after high school in a Tech Corp. to support his education and gain experience for yearly $30.000 after tax. His life cost yearly is $10.000. He plans to go to university after his sister graduates 4 years later with 75 % scholarship to a yearly $40,000 school. His university will also be 4 years. His spending will not change during university. He will take care of himself after graduation. The Carlsens personal investments total $610,000, and they plan to continue to manage the portfolio themselves. They prefer conservative growth investments with minimal volatility. One-third of their portfolio is in the stock of Queens employer, a publicly traded technology company with a highly uncertain future. The shares have a very low-cost basis for tax purposes. The Carlsens, currently taxed at 20 percent on net realized investment capital gains. In 10 years, Magnus will receive a distribution from a family trust. His portion is now $1 million and is expected to grow prior to distribution. Magnus receives no income from the trust and has no influence over, or responsibility for, its management. The Carlsens know that these funds will change their financial situation materially but have excluded the trust from their current financial planning.

A. Calculate below

a. Current yearly spending of Carlsens

(Hint: parents earning savings)

b. Assuming father mother spends same and son daughter spends same, write their yearly individual spending

Hint 1: Son Spending = Daughter Spending

Hint 2: Mother Spending = ( Total Spendings kids spendings ) / 2

c. Probable 10 years base savings of mother and father combined just considering income and todays spending amount

Hint: year * (current yearly savings)

d. Cost of daughters education

Hint: Initial contribution + yearly spending * years

Note: yearly spending is 40.000 which is additionally 30.000 since in high school she was spending 10.000 yearly. Do not add 10.000 to 40.000 and do not make it 50.000

e. The money the son will save until he will start university

Hint: ( salary spending ) * years

f. Money the son will need during his university education

Hint: ( Tuition * ( 1 scholarship rate ) + yearly spending ) * years

g. Will the money the son will save be enough for his education. Will he need to get money from parents during university education?

Hint: ( Saved Total Spending during university )

B. What is the remaining money they have after 10 years assuming no capital gain from investments

Hint: Base Save = Initial money ( 610.000 ) + 10 years parents total salary 10 years spendings by parents 10 years total money taken by son and daughter from family

C. The family will need $700.000 in interest and use it for additional income during their retirement; so, it is the amount which will not be touched. If total savings until retirement achieves x gain rate before tax to buy a house at current price $300.000. Total inflation for house prices after 10 years is 40%. Find x

Hint: ( House price * ( 1 + inflation ) = Total save before gain * ( 1 + x * ( 1 - tax rate ) ) supporting money )

1. Explain very shortly with your own words the below for Carlsens. Use bullet points and keywords
   1. Return objective
   2. Risk tolerance
   3. Time horizon
   4. Liquidity requirements
   5. Tax concerns